World financial and economic crisis

Market economies have crises from time to time; if they pass to other countries, a world crisis arises. In 2007–2008 a crisis began in the mortgage loan system of the USA: for many years banks had given housing loans even to people with little ability to repay, a large share of debts was not returned, and banks became unable to pay and some went bankrupt. When banks stopped lending, firms cut production, unemployment rose, and output and world trade fell; because countries’ economies are linked, the trouble spread to Europe, Japan and other countries. The crisis is compared only with the Great Depression of the 1930s: then production in the USA fell sharply and unemployment reached about a quarter of the labour force, and prices did not rise but fell — this was deflation: in 1929–1933 prices in the USA dropped by about a quarter (the book says prices rose, which is wrong). Uzbekistan’s economy at that time was little connected to the world financial market and foreign investment was small, so it stayed somewhat aside, but the prices of exported cotton, metals and other goods fell and profits decreased. In later years the economy opened up and ties with the world widened; this gives opportunities but external risks also grow, so making the economy diverse, competitive and resilient to crises is important.